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Pricing Counterparty Credit Risk
2015Until 2008, counterparty credit risk in books of OTC derivatives was seen as a secondary risk This was for a number of reasons Most counterparties had strong credit ratings and the world economy was going through a phase of low defaults As a result, the risk of counterparties defaulting was seen as negligible Also, the complexity of pricing, managing ...
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Derivative Credit Risk (Counterparty Risk)
2017The points discussed in the previous chapters could give the impression that credit risk can only occur if a creditor lends money to a borrower, but this is not the case, as when a derivative is contracted this generates a new risk whereby, should the case arise, the other party in the contract fails to meet their obligations; this risk is a particular
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Annual Review of Financial Economics, 2014
This review provides formal definitions of the terms credit value adjustment (CVA) and debt value adjustment (DVA). Estimating these quantities requires modeling the probabilities of default and the loss given default, recognizing the dependence structure among all these inputs.
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This review provides formal definitions of the terms credit value adjustment (CVA) and debt value adjustment (DVA). Estimating these quantities requires modeling the probabilities of default and the loss given default, recognizing the dependence structure among all these inputs.
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Counterparty Credit Risk Models
2016In Part 2, we have discussed the validation of models for credit risk by looking at the three components of the regulatory formula for risk-weighted assets: probability of default, loss given default and exposure at default. In this chapter we turn to a type of credit risk that has become extremely important in the wake of the 2008 financial crisis and
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Static Models of Central Counterparty Risk
SSRN Electronic Journal, 2014Following the 2009 G-20 clearing mandate, international standard setting bodies (SSBs) have outlined a set of principles for central counterparty (CCP) risk management. They have also devised formulaic CCP risk capital requirements on clearing members for their central counterparty exposures.
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Pricing Counterparty Credit Risk
2009We have analysed in the previous chapters the most straightforward ways of mitigating the risk of default of a counterparty, namely by imposing limits on transacted notional amounts and by negotiating collateral agreements with the counterparty.
Giovanni Cesari +5 more
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Counterparty Risk Aggregation and Risk Mitigation
2009In the previous chapters we have considered credit exposure of single transactions. We examine now how to aggregate these exposures at counterparty level and then how to control and manage the risk from a portfolio perspective. This is where the real challenge starts and where it becomes clear why a robust modelling framework is necessary.
Giovanni Cesari +5 more
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Management of Counterparty Risk
2009Counterparty risk is normally understood as the risk that the other party fails to fulfil its contractual obligations. Managing the firm’s exposure to counterparty risk means managing the principal-agency relationship with the firm as principal and its contract party as agent.
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Bayesian backtesting for counterparty risk models
Journal of Risk Model Validation, 2022Matthias Arnsdorf, Mante Zelvyte
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